GBPUSD seems to be heading for 1.7000/1,7200

Last week GBPUSD finally broke above the congestion area which has been constraining it over recent weeks. It is my opinion that so long as it can now hold over 1.6300 (with the usual caveats of short term dips below), then I believe it is headed for a move to the key pivotal 1.7000/1.7200 area.

The monthly chart below shoes how pivotal the1.70/1.72 area has proved over the past 15 years: Areas such as these often have an almost magnetic affect.

The weekly picture backs up this view (see below).

• GBPUSD broke above a strong declining resistance line in early Feb and has since been battling to consolidate that break, whilst at the same time mostly remaining above the line, which has now switched to support.
• In addition the pattern formed over the past 6 months appears to be a 'Cup and Handle' type pattern, with the past two months forming the handle to this pattern. This suggest that the breakout of the past couple of weeks may be meaningful, with 1.6300 now switching to significant support, and upside targets in the low 1.7000s. 

Thus as long as 1.6300 can hold (minor and short-lived breaks excluded), then I think the odds favour further upside in coming weeks.

EURUSD

Quick comment.

The speed and surprise of the rebound on the EURUSD is stunning. - I guess the run up to the high 1.4000s - at a minimum - is on the cards now, with pullbacks to the 1.4450/1.4500 likely to be support.

Last week's Harami looks like a failure, unless we have a very weak close today.

Markets are likely to be thinner from here into very early May, with the confluence of Easter, Spring and Mayday (& Wedding) holidays over the next couple of weeks. - I am always a touch skeptical of moves over thin markets. . - My guess is the thinning of markets probably kicks off today, however I would be interested to see volume stats for the past 48 hours.

Enjoy the holidays.

I really should start listening to my own views.

Monday, morning : My Comment was that last week we had a 'Bearish Harami' pattern. The gist of this being that a setback is due, but most likely a moderate one. - I used the Harami to cut my long, which I felt happy about.

However - I followed this by saying that on any setback 'I favour any moves below 1.42/1.43 being short-lived'.

Yesterday my comment was, regarding the S&P downgrade : 'It will be interesting to see whether the market brushes this off, or whether this now grows in prominence in the markets mind'.  - My point being that S&P had really pointed out something which everyone knew anyway.

Put these two together, and really I should have been buying a cheeky little long EURUSD position. - Did I do anything ,,, Nope - what a missed opportunity. - I could have bought in the low 1.42s and I would be bagging a quick near 200 ticks. - I would probably have been selling back in the high 1.44s, because the Harami from last week is still present, and I think will keep this maintained in a range.... - I will not short here, because I do not fancy being counter-trend right now, I'd rather buy dips....

And there you have it...- Note to self : 'Listen to yourself more often'.


On that note I will leave you, as I think I may be going slightly mad. - Too much sunshine.....Not use to it in London.

The Elephant in the room & Where's safe for your money?

Whilst yesterday's S&P did announcement really did not really say anything new, I believe what it did do was say to many in the market, 'Guys, errrr, has anyone noticed, THERE'S AN ELEPHANT IN THE ROOM'.  
It will be interesting to see whether the market brushes this off, or whether this now grows in prominence in the markets mind.

This begs the question, where is a safe place for investment over the long-term...


EURO : Still seems like a car crash happening : Greece 2 year yields hit 20% yesterday, Ireland and Portugal are major basket cases. And Spain is everyone's fear. - The ECB are trying to hold it altogether, whilst raising rates, but there is so much uncertainty.
 
USD : Just had it arse kicked royally by the S&P, and there is much work to do over the next few years on the deficit and it seems little will to do so right now.

JPY : Their deficit is none too hot, after years of sub-par growth, and now with major rebuilding costs.

UK : I live here, I honestly can't imagine why anyone would want to park their money here right now. That may be a touch unfair, we are trying to get the deficit down, but its a very fragile coalition behind it, and a highly indebted nation.

The BRICS would seem the place right now, but then they have been the place for ages, and many are seeing spiraling inflation.

Stocks: are these at unsustainable levels? Oil prices through the roof, government spending being slashed or due to be slashed in many countired, high unemployment. - Technically looks like a possible topping pattern on the SP500.

Commodities, Energy : Gold at almost £1500, for all the reasons above, Gold would seem to be the place still, but I can not help thinking this is crowded trade full of 'Johnny come latelys'. - Oil, I wonder how much further to go.....

Long-term Govy's - See my comment above about World Government No. 1 getting its arse kicked by S&P.  Core Europe Govies might be a better bet, though Euro uncertainties weigh.

AUD would still seem a good bet, as long as commodities remain hot, and everywhere else seems questionable. But if commodities turn down and stocks, then watch out below :-( . Also the froth is coming off the economy there.

Cash or Short-term Govvies. Seems like this may be one place to look in coming months. If stocks turn and things get ugly, a lot of the still priced in rate hikes will come off the table, though these have already been pared back of late, but could still have room to go. - Yield may not be great, but if it is safety one is after, perhaps one of the best places.

CHF is the obvious safe-haven bet, which argues very much against my EURCHF bottoming technical call, and it is quite possible this recent range is merely consolidation ahead of further strength.

Thus, bets bet right now, possibly CHF Govy bonds/ or possibly euroswiss futures.

EURUSD - WEEKLY CANDLE SET-UP WARRANTS CAUTION.

The EURUSD weekly canclesticks has produced a Bearish Harami pattern on the weekly charts.

 

A Bearish Harami pattern has the following key features:

  • Day 1 is a long positive-day bodied candle continuing an established uptrend.
  • Day 2 is a small bodied-candle whose range is within (or mostly) the first days body, above its midpoint.
 
I would not use this as a reversal signal in itself, but it does hint to the possibility of a small set-back or perhaps further extended consolidation. Bearish Haramis tend to be relatively moderate signals on their own, however it is worth keeping an eye on subsequent price action which could produce a further signal.

In range bound markets this formation will occur frequently with little significance. But if this pattern occurs after a protracted uptrend it is of greater importance. If this does turn out to be a reversal pattern the high of the two candles will likely turn into a significant resistance level.

My own view is that the breakout of the high 1.42s/1.43 of recent weeks is likely to be highly significant if it can be maintained, however, given its significance, it was always likely to be tested several times around the break. Initial support will be in the high 1.42s/1.43. A break could see a test back to the 1.4000 area, however I favour any moves below 1.42/1.43 being short-lived. - Of course, given fresh concerns around the Euro, I can not rule out a deeper correction, and given the number of new longs on the recent break to the upside, we may have a much deeper reversal, with the risk of the recent break being a false break.

USDJPY

I am throwing the towel in on my long USDJPY view of now. I believed it had turned the corner in recent weeks, and while this may still be the case, I am back to neutral on this for now.

EURCHF

Has struggled of late, helped by lingering concerns over the Euro, and as long as worries persist, I guess this will continue to meet sellers on rallies. I think it still may be forming a 'Double Bottom' pattern, but the jury remains out, unless a confirmed break over 1.3210/20 occurs.

BUND

Bounced beautifully off of last weeks Morning Star signal, may still have more upside, though I am aware of resistance around 121.70, and more particularly in a broad band from 121.41-121.89.

Bund - A reversal ? + FX Updates,

BUND

Interesting price action the past few days. The pattern formed over Friday - Tuesday looks like a possible reversal pattern, or at least a meaningful correction pattern. - The pattern is a 'Bullish Morning Star' pattern, these are usually pretty reliable, though the tech analyst caveat of 'follow-through required' should be added. Of course as all traders know, in the real world, if one waits for follow-through one may miss it, whereas if one acts now, the pattern may turn out to be a dud with no follow-through. - That my friends is why it is called risk-taking. 

Of course this signal is coming up against a very strong and powerful downtrend, which could easily overwhelm it; short-term resistance is at the Thursday/Friday gap at  120.56/63, above here the odds of at least a meaningful correction grow stronger. - It is worth noting, that this week's low is very close to the 38.2% correction of the 2008 to 2010 rally at 119.63. This may add to the idea that we are due a correction. Also supporting this view is the weekly RSI momentum set-up, with this recent low producing 'Bullish Divergence'. In addition RSI momentum has produced an Inverse Head & Shoulder pattern. - I am aware this is an unconventional way of looking at momentum set-ups, however I have noticed similar occurrences occasionally at previous major reversals, such as the 2007 and 2008 lows (highlighted on weekly chart).

Below shows an illustration of a 'Morning Star' Pattern, the current daily chart showing this pattern, and the weekly chart showing RSI.

FX Update

EURUSD - The breakout of the 1.4280/1.4300 last week has followed through well so far.
1.4280/1.4300 should now act as support for pullbacks..... I think a push to the high 1.4000s remains on the cards.

EURCHF failed to follow through on the upside, though I still think the 'Double Bottom' pattern formed on the weekly remains a favourable development.
Support on the downside is 1.2930/50 and then 1.2840. A clean  break of 1.3200 is needed to confirm the large Double Bottom pattern, with upside targets at 1.4000.

USDJPY. I think we have a valid upside break on this pair, however this move lower is straining that view.

I feel it needs to probably hold the mid/low 83s, if so then I still fancy a run at the upside, below 83 may however cause a re-think.

Looks Like a break in the EURUSD.. But

This looks like a break in the EURUSD, but wary that being the day prior to the ECB, it may not have been the real flows needed. In addition, given the significance of the level, (e.g. this may be a major long-term break) caution is still needed, true chartists may wait for a weekly or monthly confirmation to occur for proof. - Of course traders live in the real world, where decisions have to be made pre- not post- confirmation and have to take their chances. - I think this will be meaningful, even if a setback does occur. - We use to have a saying at my old place, regarding lines such as these -'Its got to lubricate to penetrate', I think I'll leave it at that.

I won't be around for a couple of days, so next update, prob Monday, chance to survey any damage then....

Key levels against traditional low yielders CHF and JPY, and morning update, EURUSD on the cusp.

Over the past 2/3 weeks the tide has turned sharply against the the traditional safe-haven low yield currencies CHF and JPY. Last week I highlighted that these in terms of EURCHF and USDJPY are both close to making serious moves higher.

Overnight ( I write this at 10.30 pm UK time) the USDJPY has marginally breached key resistance, I think a day-time break and hold needs to be seen to add weight to this break. Also EURCHF is pushing the double-bottom break line at 1.3205, a clean break of this line could see a sharp rally to close to 1.3900. - I guess will need to see the outcome of the ECB before such a key level is given any serious work.

See charts attached.

 AM Update - Wednesday 6th April.

 EURUSD is on the cusp of a major breakout, which could see a sharp move towards high 1.4000s. the 1.4285/1.4300 is something I have banged on about for a while. This held the first major test, however currently it is pushing right into it. - A sustained break, could be the catalyst for a move to the high 1.4000s in coming weeks/months, and the catalyst for a bigger move longer-term. - Obviously tomorrow's ECB will be a factor on whether it can break, or hold a break.

Guest comment on 2011 so far, wih some views of where we may head..

Today I have the honour of a guest posting from someone I have known and respected for many years. He prefers the posting to remain anonymous, however I will just add that he is very good friend who is highly knowledgeable on markets having traded them very successfully for the best part of the past 2 decades. I particularly like his comments on yields. 

Feedback and commentary, whether in agreement, or with alternative views, would be highly welcomed..

Below is my data and my thoughts on the year thus far ... if , by the time you read this, new highs or lows have been made in a certain product , then that is my apology , but its a moving market....

ok , so below you will find the products i track regularly , their years highs and lows And the date these levels were made, and some short , brief thoughts from myself (all original, unless quoted) .  if you could take some time and look at the data and the dtes, you will be able to discern some patterns and events that have been major points this year...middle east ; japan and the mini crash and the subsequent jpy intervention; ecb hawkishness ; all rates relative to usa widening ; vix complacency etc....

I hope you enjoy looking at this and i would welcome all your thoughts

asset class                            years hi and date made                                        year low and date made

------------------                       --------------------------------                                       ------------------------------

dow jones                           12419  (1/4)                                                              11555  (16/3)

sp                                         1344  (18/2)                                                             1248 (16/3)

nikkei                                      10857 (21/2)                                                          8227 (15/3)

ftse                                           6091 (8/2)                                                              5598 (16/3)

dax                                            7426 (18/2)                                                             6483 (15/3) 

shanghai                                   3002 (9/3)                                                              2677 (25/1)

observations :  there was a mini crash on 15 and 16 march on nuclear radiation panic ...but clearly the dow has fully recovered . ftse in narrow range as befits a country stumbling along with a fair amount of economic issues (pure commodity inflation ,unemployment , falling wages , fiscal austerity , weak housing etc )  ; the nikkei should lag all for a while .  shanghai also narrow range as markets constantly anticipating chines RRR hikes and rate hikes and the 'pending' china slowdown or crash landing . less hot money is being drawn to chinese asset bubbles.

--------------------------------------

vix                                              31.28 (16/3)                                                         15.46  (14/1 )    [ note a few bounces around 15.5 on few occasions]

gold                                            1447  (24/3)                                                        1308 (27/1)

WTI crude                                  108  (1/4)                                                              84.22 (15/1)

observations : Gold and Brent are having a period of high correlation , with a 1% move in Brent driving about a 0.5% move in Gold as movements have been largely driven by Middle East events.   the vix should not really go below 15 as there must be a form of fear premium in the market .  vix close to 15/16 is an alarm bell for risk assets . nevertheless , the asset markets are rising on a mixture of vapour , decent economic news, qe2 and easy money , and all bad news gets shrugged aside . this could be a problem in spurts ....but overall there is optimism out there. 

-------------------------------------------

june 2y tsy                                 109. 16 3/4  (16/3)                                            108.22 (8/2)

june 10y tsy                              121.08   (16/3)                                                    116.12 (8/2)

june 30y tsy                             122.16   (16/3)                                                     115.21 (8/2)

june gilt                                     119.46  (3/1)                                                       114.13(9/2)

june schatz                                 108.82    (3/1)                                                      107.03 (1/4)

june bund                                    124.85 (10/1)                                                     120.73 (1/4)

2y tsy yield                                0.893 (1/4)                                                        0.54 (28/1 and 16/3)

10y tsy yield                               3.766  (9/2)                                                        3.145 (16/3)

30y tsy yield                                 4.787  (9/2)                                                     4.32 (16/3)

gilt yield                                     3.912 (9/2)                                                          3.42 (4/1)

schatz yield                                 1.856  (1/4)                                                       0.817 (4/1)

bund yield                                    3.41 (1/4)                                                         2.852 (7/1)

observations :  clearly german fixed income the massive underperformer on mixture of hawkishness from ecb inflation paranoia ; good stock market performances ; higher long end global yields as BRIC countries are also raising rates and anticipation of end of QE2 and the rally thats underway in usa long yields. BUT ALSO PLEASE NOTE..the more the germans help bail out euro peripheries , then the more the bund etc become one of them!! ie the bund will be debt laden too...hence bund to underperform , anyway.   also,  note 16/3 mini stock crash and black swan event caused us yields to implode ....

---------------------------------------------------------------

eurusd                                        1.4248  (22/3)                                                  1.2863 (10/1)

cable                                           1.6400 (22/3)                                                    1.5406 (6/1)

eurgbp                                         0.8852 (31/3)                                                   0.8283 (7/1)

usdjpy                                       84.73 (1/4)                                                        76.25(16/3)

eurjpy                                        119.78 (1/4)                                                     106.81 (16/3)

aud                                           1.0395 (1/4)                                                      0.9708 (16/3)

euraud                                       1.4337 (16/3)                                                   1.2930  (7/1)

audjpy                                        87.59 (1/4)                                                       74.57 (16/3)

usdchf                                        0.9785  (11/1)                                                   0.8862 (16/3)

eurchf                                        1.3204  (11/2)                                                    1.2414  (31/1 and 16/3)

usdcad                                        1.0030  (23/1)                                                   0.9627  (1/4)

nzd                                               0.7816  (2/2)                                                    0.7120  (16/3)

eursek                                         9.0321 (16/3)                                                     8.6993  (16/2)

eurnok                                         7.9715   (28/1)                                                    7.6825 (3/3)

observations....clearly the jpy intervention has been the driver form 16/3 lows to 1/4 highs seen above as the carry trade was given license to print as the speculators were completely flushed out after 16/3 flash crash....   its hard to ever imagine the 16/3 lows will be seen again ... but how haigh can the carry trade go before it buckles under its weight ? who is not long aud, nzd, cad , sek , nok etc?? 

it definitely feels that a carry bubble is being made as aud makes new highs every day , despite softer economic data . (aud pmi dropped 4 points this week).

-------------------------------------------hi's                                                                      lows

euribors 

 jun11                                         98.92 (3/1)                                                              98.345 (3 and 4 march) 

 sep 11                                       98.83    "                                                                  98.045            "

 dec 11                                       98.705  "                                                                   97.785           "

 mar12                                        98.57    "                                                                   97.575            "

jun12                                           98.40   "                                                                    97.375    (3 and 4 march and 1 april)

 sep 12                                         98.175 "                                                                    97.19           (1/4)

observations ... there are enough hikes priced in here .... totally and i would go as far as saying we could be seeing the interim bottoming of the european fixed income curve , both short end and long end ...as one GS observer put it : 3 month Sharpe ratio’s above 4 are often indicative of a “micro bubble” in terms of market psychology. Currently European front-end  has one of 4.4 for bearish positions indicating such positioning might be vulnerable to even modestly bullish catalysts in the near term.
i toltally concurr ... maybe trichet , after hiking on thursday , disspells market view of continuous hikes ??

-----------------------------------------------------     

short sterling

 jun11                                        99.13 (3/1)                                                               98.77 (7/2)

 sep11                                        99.00   "                                                                   98.49    "

 dec11                                        98.79   "                                                                    98.20   "

 mar 12                                       98.55  "                                                                     97.87  (15/2)

 jun12                                         98.28   "                                                                    97.55   (15/2)

 sep12                                        98.02    (16/3)                                                           97.30    (15/2)

observations :  in a holding pattern , awaiting for  the 'to hike or not to hike' debate to unfold.... again , i believe a lot priced in , given the fragile economy . commodity inflation , with non rising wages , is demand destructive ... its a portend to a disaster ifrates are hiked aggressively .

a token 'regain our credibility hike' by the BOE has no place in this economy at moment.

-----------------------------------

eurodollars

 jun11                                       99.66  (1/4)                                                               99.475  (6/1)

 sep11                                      99.61 (15/3)                                                               99.315   (6/1)

 dec11                                      99.50  (16/3)                                                             99.09     (6/1)

 mar 12                                    99.35   (16/3)                                                              98.825 (6/1)

 jun12                                       99.11  (16/3)                                                                98.45 (6/1)

 sep12                                      98.82   (16/3 )                                                             98.09  (16/2)

observations : totally slave to feds QE2 and if it will end on or before june .. we see all the differing opinions between the hawks and the doves out recently.  my view is it goes on till june , then end .... i think the us rate curve is massively underpriced , relative to europe and uk , so there is a call by me that we are close to big turn in the rate differentials between the us and all europe . close could mean a week or a couple of months....but not more. this ties in with my view of carry trade being in danger and european yield curve too high .

------------------------

1y eurusd                               -146  pips (1/4)                                                          -23 pips (3/1) .....

1y usdjpy                              -52 pips  (5/1)                                                             -37 pips (3/1)

1y cable                                 -124 pips (23/2)                                                          -67 pips (3/1) 

observations .... from above , it is clear my view is that forward eurusd and forward cable go back to right eventually and hard .. and forward jpy to left .... 

Is JPY finally about to weaken?

It appears as if the low yielding currencies may be finally losing their lustre. Yesterday I highlighted the risk of a turn in EURCHF, today's chart is USDJPY. Whilst a full reversal is still in questionable, the signs are increasingly lining up to suggest something may be occurring.

The top chart shows the monthly USDJPY, the biggest possible signal is the large Hammer candle produced last month. Hammer candles are not confirmed as signals until subsequent price action acts in a way to suggest that a trend change is happening. That of course is the technical analysts luxury, they don't have to place the trade, whereas the trader has to place a trade, the trader can not wait for confirming price action, (he can, but may miss a big move and/or be left with a far less favourable risk/reward scenario).

A couple of very big levels to watch on the monthly chart: 

• 84.82 : This is the low from late 2009, this acted as a firm cap from late 2010 through early this year.
• Above there it gets interesting in the low to mid 87s. This is where the 21 Month SMA starts to intersect, this is significant to the extent that in over the past 30 years a closing monthly break of the 21 month SMA has always lead to a continuation of the move in subsequent months. - see second chart below.

The third chart shows the weekly USDJPY:

• Once again we have a clear Hammer candle. subsequent price action this week has suggested this may be significant, a clear break above the key pivot at 84.82 will likely confirm this.
• The past few months may have seen a triple bottom formation, which is a key reversal pattern. (I have ignored the spike low for the sake of this).
• The past few months have also formed a triangle, the breakout, together with the spike, has in my opinion been rejected, and therefore increase the possibility of a breakout on the other side. This has occurred intraday thus far, but will need to occur on a longer-term basis to be valid.